Some Planning Benefits of a PRSA

A previous blog looked at the advantages a Vested PRSA has over an ARF. This blog considers some of the key planning features inherent in a PRSA:

1. Transfers- A PRSA can receive in benefits from occupational pension schemes, personal pensions and other PRSAs. No other pension structure has this flexibility.
2. Phased retirement- It is possible to have multiple PRSAs and retire from the PRSA as required thereby accessing your tax free lump sum over a multi-year period. With the recent changes to the tax fee lump sum cap, the PRSA offers the individual the ability to make more use of their income tax exemption limits.
3. Better disclosure and reporting-The regulatory regime surrounding the PRSA is probably the most thorough of any financial product available in Ireland.  In addition to the normal checks and balances imposed by the Central Bank on the PRSA provider, there are an additional set of checks imposed by the Pension Board and supervised by the PRSA actuary.  In addition to the tighter regulatory regime there are more comprehensive regular reporting requirements to the individual investor in a PRSA contract than for most other pension structures.
4. 100% allocation rate and no exit penalties- On transfer business, a PRSA provider must give an allocation rate of at least 100% and cannot impose exit penalties.  This gives individual clients much more flexibility if their financial needs change and they need to access their funds.  It also means that PRSA providers are more likely to lower the annual management charge rather than enhance the allocation rate as they don’t have the protection of the exit penalties.
5. Flexibilty – A PRSA can exist as a pre-retirement vehicle (Accumulating PRSA), as a post lump sum vehicle (Vested PRSA) or as a drawdown vehicle (Drawdown PRSA). Being able to use the one vehicle pre and post retirement results in significant cost savings and planning opportunities.
6. Availability – A PRSA can be used by employees, directors, those with self-employed income and those with no earned income at all.
7. Public Sector AVCs – The option of paying AVCs into a PRSA is enormously popular in the public sector where the choice of providers is otherwise severely restricted. Ironically, the current financial crisis is making such AVCs more popular than ever as civil servants become aware of the possibility that their pension benefits could be reduced.

For Pension Advisors the flexibility and planning potential inherent in a PRSA has led to its current success. None of the recent legislative changes have altered the natural advantages it enjoys over other pension vehicles. From a standing start in 2003 PRSAs are now the fastest growing area of the pensions market.

Paul Gilmer